EU to add international CO2 credits to next climate goal

BRUSSELS - The European Commission will on July 2 propose an EU climate target for 2040 that for the first time will allow countries to use carbon credits from developing nations to meet a limited share of their emissions goal, a draft of the proposal showed.

The draft, seen by Reuters, said the European Union executive would propose a legally binding target to cut net greenhouse gas emissions by 90 per cent by 2040, from 1990 levels – with the aim of keeping the EU on course for its core climate aim to reach net-zero emissions by 2050.

But following pressure from governments including France, Germany, Italy, Poland and the Czech Republic, the draft EU proposal includes flexibilities that would soften the 90 per cent emissions target for European industries.

Previous EU emissions targets have been based entirely on domestic emissions cuts.

Reflecting Germany’s public stance, up to 3 percentage points of the 2040 target can be covered by carbon credits bought from other countries through a UN-backed market, the draft said, reducing the effort required by domestic industries.

The carbon credits would be phased in from 2036, and the EU will propose legislation “setting robust and high integrity criteria and standards, and conditions on origin, timing and use of such credits”, the draft said.

Countries would also get more flexibility on choosing which sectors in their economy contribute most towards the 2040 goal, it said.

Climate change has made Europe the world’s fastest warming continent and a heatwave this week has caused wildfires and disruption across the continent, but Europe’s ambitious policies to combat temperature rise have stoked tensions within the 27-member bloc.

While the European Commission has pitched its climate agenda as a way to improve Europe’s competitiveness and security, some governments and lawmakers say industries reeling from US tariffs and high energy costs cannot afford tougher emissions rules.

“Decarbonisation is not only crucial for the planet, but also a key driver of economic growth when integrated with industrial, competition, and trade policies,” the draft said.

A Commission spokesperson declined to comment on the draft, which could change before release.

Carbon credits are generated by projects that reduce CO2 emissions abroad – for example, forest restoration in Brazil, and fund-raising for such projects. However, investigations have shown some credits failed to deliver the environmental benefits they claimed.

Over the past couple of years, there has been much greater scrutiny of carbon offset projects. Tougher standards and methodologies have been put in place to ensure credits generated from projects are of high integrity and increasingly come with social and biodiversity benefits.

In June 2025, Singapore, Britain and Kenya

launched The Coalition to Grow Carbon Markets alliance

, which aims to spur corporates in those countries to voluntarily buy carbon credits as part of their emissions-cutting efforts as well as to raise the standards of the unregulated voluntary carbon market globally.

The EU’s climate science advisers have opposed counting international carbon credits towards the 2040 target, and said spending money on foreign carbon credits would divert investments from local industries.

EU countries and lawmakers must negotiate and approve the 2040 goal. That lawmaking process can take years, but the EU faces a deadline of mid-September to submit a new 2035 climate target to the UN – which the Commission has said should be derived from the 2040 goal. REUTERS